Survey: China factory activity up but export orders drop

KELVIN CHAN

Feb. 25, 2015

HONG KONG (AP) — China's manufacturing activity edged up to a four-month high in February although export orders decreased for the first time in nearly a year, in the latest sign of uncertainty for the world's No. 2 economy, according to a private survey Wednesday.

HSBC's preliminary purchasing managers' index released Wednesday rose to 50.1 this month from 49.7 in January.

The reading comes in barely above the 50-point level that indicates no change on the 100-point scale.

The bank's chief China economist, Qu Hongbin, said the reading showed there was a "marginal improvement" in China's outsize manufacturing sector heading into the Lunar New Year period.

The holiday tends to distort China's economic data at the beginning of the year, with factories stocking up on raw materials and rushing to complete orders before shutting down for an extended break that begins at different times in January or February.

"However, domestic economic activity is likely to remain sluggish and external demand looks uncertain," Qu said. "We believe more policy easing is still warranted at this stage to support growth."

The report said that new export orders contracted for the first time since April, a sign of waning demand as the global economy struggles to recover.

China's economy grew 7.4 percent last year, its slowest pace in nearly a quarter-century, and economists forecast growth to slow further in the coming years.

Earlier this month, policymakers acted to counter the deepening economic slowdown by cutting the minimum level of reserves banks are required to hold. The People's Bank of China said the reduction will free up more money for lending and will support small and rural enterprises, construction projects and other activity.

The HSBC survey, compiled with Markit, is based on 85-90 percent of responses from more than 420 purchasing managers. The final report is due March 2.